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Fracking Boom Seen Slow to Develop in New York, Regulator Says

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by By Jim Efstathiou Jr. - May 23, 2012 3:04 PM ET in Bloomberg

A decision to permit hydraulic fracturing for natural gas in New York state will trigger a cool response from drillers, the state’s environmental regulator said.

Low natural-gas prices have dulled interest in New York’s gas reserves, Joseph Martens, commissioner of the Department of Environmental Conservation, said at a conference today. The agency is reviewing more than 66,700 comments on a draft plan for drilling in the state’s portion of a geological formation called the Marcellus Shale.

Since New York began developing gas-drilling rules in July 2008, prices have plunged more than 80 percent, sinking to a decade low $1.902 per million British thermal units on April 19. During that time, Pennsylvania and Ohio allowed producers such as Chesapeake Energy Corp. (CHK) and Talisman Inc. (TLM) to drill, attracting billions of dollars in investment.

“I don’t think there’s going to be a flood of drillers coming into New York,” Martens said at a conference at Columbia Law School in New York City. “The reality is, with the price of natural gas so low, that if we put out the regulations and move forward with the process in New York it will start slowly.”

The state is considering rules for high-volume hydraulic fracturing, or fracking, a process in which millions of gallons of chemically treated water and sand are forced underground to break up shale rock and free trapped gas. Part of the Marcellus Shale, which may contain a two-decade supply of gas for the U.S., extends into New York state.

Clean Water Threats

Environmental groups say the process threatens clean air and water and are seeking to block drilling. More than 20 towns in the state have adopted laws to ban drilling, according to Karen Edelstein, a geographic information-systems consultant in Ithaca, New York.

Martens said nothing submitted in public comments on the proposed rule suggests fracking should be banned. Draft guidelines released in July proposed buffer zones between wells and water sources such as the aquifer that supplies New York City.

“The conclusion at the end of the draft was that we could do this safely in New York, and I haven’t seen anything yet to change that conclusion,” Martens said.

The review will take months to complete, Martens said.

Fracking has been used to drill more than 4,400 wells in Pennsylvania since 2009. Energy companies spent about $11.5 billion in the state in 2010, including $346 million in royalties to property owners who leased their mineral rights, according to a July report from the Pennsylvania State University College of Earth and Mineral Sciences.

In Ohio, companies including Chesapeake, Devon Energy Corp. (DVN) and Exxon Mobil Corp. (XOM) are drilling in the Utica Shale, which is deeper than Marcellus. The Utica shale will support 65,680 jobs and add $4.9 billion to Ohio’s economic output by 2014, according to a Feb. 28 study by the Ohio Shale Coalition.

Natural gas for June delivery rose 3 cents to settle at $2.737 per million British thermal units on the New York Mercantile Exchange.

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